How to Navigate Toronto Style Debt in Life

Published on 3rd August 2017

Coming back from my future sister-in law’s convocation, it struck me so hard that as a city we are perpetually in debt. I don’t know about you folks but debt used to freak me out.  When I graduated with a significant amount of debt, I also paid for residence (was NOT cheap :S), I was freaking out wondering how I would ever repay my OSAP loans.

With an entry level job, if you can find one right now (Sorry graduates), you could barely pay for living expenses, food, and your OSAP debt unless you are lucky to be under the roof of mommy and daddy still.
As a city, just to live in Toronto, we often have to incur a lot of debt. From OSAP, post-graduate studies, mortgages, cars, and worst of all cc debt. What you may not have realized is all these “big expenses” are paid off via an amortization schedule in which interest is blended in with your principal payment, just like your house.

All these monthly payments always creep to be bigger and bigger and bigger and that’s why debt freaks people out. Oh, add in that your income doesn’t increase at that pace -_-…. and you have a receipe for distaster.

Maybe it’s because of my upbringing, or maybe it’s because of my entrepreneurial career path, but I no longer freak out about debt. I came to that realization only a few days ago actually. I actually look at debt as a tool now. A powerful tool.

If anyone has read Rich Dad, Poor Dad by Robert Kiyosaki, the book does a really good job at explaining this. If I had to summarize it in 1 sentence for you, it would be: Good debt is debt that makes you more money after interest, and the bad one is debt you’re paying off yourself that makes you no money.
That helped me realize we all need to use debt to get a head. To move up the proverbial freedom ladder. I’ll give you examples.

1) Borrowing money from the bank to start your own business, Debt.
2) Looking for investors (basically borrowing from someone in exchange for shares of your company to grow more), Debt.
3) Buying investment properties, Debt.
4) Borrowing money to invest, Debt.
5) Borrowing money for school, Debt.

It’s just the new norm. Without debt, or what I’m going to call it now, “Leverage”, (See, if you use fancier words it makes it sound better lol), it’s definitely harder to get ahead. Let me illustrate with the examples above.

1) Starting your business gives you potential at higher income.
2) More money gives speed in business to penetrate the market faster.
3) Leverages your tenants to pay down your asset.
4) Allows you to increase your profit spread.
5) Gives you potential for higher salary.

All of those debts above yield you a higher return on investment, your future bank account. Of course all of them to an extent are still gambles, just more risk-mitigated gambles.
So why am I explaining all of this? In Toronto right now, with interest rates being an all-time low and with opportunities everywhere, don’t you think it make senses to leverage some debt to get a head?

Whether its school, real estate investing, or starting your own business it just makes sense right?  As long as we use this “leverage” accordingly we can get ahead.
Until next time, happy real estate-ing!
Zhen

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